Placebo economics

Placebos in medical uses depend on deception to convince the patient that their condition will improve. This is precisely the approach taken by the Obama administration. We are told that his efforts of stimulus spending combined with the monetary policy at the Fed will rescue the economy and create jobs. The jobs ‘saved or created’ claim is a perfect example. Simply create a number out of thin air and sell it to the public fully aware that it can’t be substantiated. Remember, we were told that the stimulus would save or create 3.5 million jobs. In fact, as of now we have lost 3.5 million jobs since the stimulus was passed. In effect, Obama was 7 million jobs short of his claim. Yet, lately he and his trusty sidekick Biden are crossing the country proclaiming it the ‘recovery summer’.

The evidence is overwhelming reflecting the failure of Obama’s policies. Yet, you must still read between the lines on what the media is feeding us. The basic premise of the recession is deceiving. Obama likes to blame Bush and the greedy Wall St. bankers for the recession and then take credit for rescuing the financial markets. Remember, the recession officially began in December of 2007. The recession was in effect for 10 months before the Wall St. meltdown of September 2008. The financial meltdown was a result of the recession, not the cause of it. Now, the technical aspects of the sub-prime mortgage derivatives markets are now well-known, but the recession is what triggered it when consumers stopped paying their mortgages.

In fact, I promote a theory not talked about as the reason for the trigger being released. We’ve heard the background of government intervention in the markets and the Fannie and Freddie debacles as well as the Community Re-investment Act that was stepped up under the Clinton administration as the primary motivators of the crash of the mortgage markets. Agreed. But why did the car go off the cliff? The recession is why. What happened during 2008 in the run-up to the crash? Two main factors occurred that caused people to stop paying their mortgages. The Bush ethanol mandate along with the price of gas exceeding $4 a gallon. Yes, the ethanol mandate. It caused the price of corn to skyrocket and we quickly found out just how many products contain corn. All of a sudden, your dollar at the grocery store didn’t go nearly as far. Compounding the issue was a barrel of oil exceeding $130 for the same reasons. Oil is in an amazing array of products. That one-two punch of corn and oil prices skyrocketing caused everyday household goods to become much more expensive. Many people simply didn’t have enough money leftover after groceries and gas for the mortgage and they quit paying. The rest is history. Of course, we can debate the side issues of people taking on too much house payment and not living with-in their budgets as factors as well as a host of other reasons, but these two price issues were the trigger.

The government laid the groundwork by incentivizing the reckless mortgage market. The lenders and ignorant consumers simply fell into place by magnifying the opportunities provided by government manipulation of the market. Yes, the government is to blame. Yes, the mortgage market is to blame. Yes, the homeowners are to blame. Everybody played their part in creating the bubble. Ethanol and oil were simply the pin that popped it.

The policies in place today under Obama are doing nothing to fix the problem and are in fact exacerbating it. Yet, all we hear is the blame Bush rhetoric. And the logic that the stimulus was simply undersized. And that the Fed simply needs to continue with quantitative easing. This all comes down to economic theory of Keynesian vs. Friedman ideologies. Basically, it’s whether the government should be the savior or the markets themselves. Keynes theories have never worked anywhere in the world over the long run, yet it puts control in the hands of politicians. Capitalism is mostly hands-off by the government and this, of course, has no appeal for politicians.

As I said earlier, you must watch closely what is being sold to you. The Dow is doing well. Corporate profits are excellent. Yet, you can’t look at segments of the big picture. You must consider everything to determine where we are headed if you don’t want to get trampled. Look at the reasons behind the numbers. We know that corporate profits are good because of efficiencies and productivity gains, not sales and demand. Labor has paid the price and we subsequently have high unemployment.

 To make matters worse, Obama is not even in the game. Still stuck in endless campaign mode, he spends his time either vacationing or promoting his other agenda items. So I call it placebo proxy politics because it’s an empty shell policy being instituted by faceless bureaucrats. The media plays along and promotes so-called achievements of the stimulus. Every bit of bad news is ‘unexpected’ or ‘disappointing’. Only to the ignorant. The sales con job will go on that the government is the last resort and must simply do more of the same. The Obama ideological agenda will march on while the economy will remain an afterthought. So buckle up and hunker down for things are not getting better anytime in the foreseeable future.